On August 25, 2008, the Centers for Medicare and Medicaid Services (CMS) released its eleventh policy memorandum regarding Medicare Set-Aside Arrangements (MSAs). The new memorandum addresses pricing of implantable devices, such as spinal chord stimulators, an issue that has been somewhat controversial recently. The new memorandum also effectively eliminates the ability of a WC claimant to seek an early termination of an MSA account.

In its July 11, 2005 policy memorandum, CMS stated, at Question & Answer #10:

Q10. Beneficiaries that Request Termination of a WCMSA Account – May a claimant have any or all of a WCMSA released for personal purposes under any circumstances?
A10. The administrator of the CMS-approved WCMSA should not release set-aside funds for any purpose other than the purpose for which the WCMSA was established without approval from CMS. However, if the treating physician concludes that the beneficiary's medical condition has substantially improved, then the beneficiary (or the beneficiary's representative) may submit a new WCMSA proposal covering future expected medical expenses. Such proposals must justify at least a 25% reduction in the outstanding WCMSA funds. In addition, such proposal may not be submitted until at least five years after a previous CMS approval letter and should be accompanied by all supporting documentation not previously submitted with the original WCMSA proposal. The CMS decision on the new proposal is final and not subject to administrative appeal.

The above proposals shall be submitted to CMS c/o COBC. If CMS determines that a 25% or greater reduction is justified, CMS will issue a new approval letter. After CMS issues a new approval letter, any funds in the current WCMSA in excess of the newly calculated amount may be released to the claimant.

            Note: The above answer replaces Question Number Eleven in the April 21, 2003 ARA WC
            Memorandum. 

    The August 25, 2008 memorandum states that this provision of the July 11, 2005 memorandum is rescinded, effective immediately. The memorandum goes on to state that "[s]ection 1862(b)(2) of the Social Security Act (the Act) (42 USC 1395y(b)(2)) requires that Medicare payment may not be made for any item or service to the extent that payment has been made under a workers' compensation (WC) law or plan. Medicare does not pay for an individual's WC related medical services when that individual received a WC settlement, judgment or award that includes funds for future medical expenses, until all such funds are properly expended." 

    Thus, even if the future required medical care for a settling claimant turns out to be less involved or costly than originally anticipated, CMS will require that the settlement's allocation to future medical expenses be "frozen" as of the time of settlement. Once the MSA amount is set and the settlement is final, the MSA will need to be funded in full from the portion of the settlement payment allocated to future medical expenses of the type normally covered by Medicare. Medicare will not cover any future, injury-related medical expenses after that point until the entire MSA amount has been properly exhausted.
    
    CMS' earlier position, as stated in its July 11, 2005 memorandum, certainly seems more reasonable from the viewpoint of the claimant/Medicare beneficiary who, five years after the settlement, no longer requires injury-related medical care. After all, why should the claimant be forced to maintain funds in an MSA for items or services that will no longer be needed? Perhaps CMS' new position is designed to ensure that such a claimant's MSA will never be exhausted to ensure that there will be no future exposure to the Medicare trust fund for that claimant's injury related medical costs.

    In addition to rescinding its earlier policy on early termination of MSAs, CMS reiterated its position that "[t]o protect the Medicare Trust Fund, a set-aside arrangement should be funded based on the life expectancy of the individual unless the State law specifically limits the length of time that WC covers work-related conditions." CMS will continue to allow life expectancy to be based upon rated ages, but now limits "acceptable proof" of a rated age to rated ages shown on the letterhead of an insurance company or settlement broker (apparently, a physician's statement regarding reduced life expectancy will no longer be acceptable). Further, the submitter must include a statement that all rated ages obtained for the claimant have been disclosed.

    In its July 11, 2001 memorandum, CMS provided that it would consider rated ages in calculating remaining life expectancy. In CMS' sample WCMSA submission, dated April, 2005, CMS stated in Note 2, Page 3, that where multiple rated ages are available, CMS would require employment of the median rated age. Thus, in the past, it has been a fairly common practice among some MSA practitioners to only submit the highest rated age obtained to ensure the shortest available calculation of remaining life expectancy and the lowest available MSA allocation amount. CMS' new policy is clearly designed to force a discontinuation of this practice. 

    One of many controversies in the MSA industry in recent years has involved the seemingly arbitrary pricing of certain medical equipment and procedures by CMS and the Workers' Compensation Review Center (WCRC) in the process of reviewing MSAs submitted for approval. Certainly one of the most significant of these, at least from the standpoint of required increases to proposed MSAs, is the pricing of implanted devices, such as spinal chord stimulators. The variety of devices by type, manufacturer, durability and cost, as well as the issue of whether such a device will even be employed for a given claimant, originally resulted in inconsistent treatment of this rather expensive item in many MSA submissions.

    In the past few years, WCRC and CMS have taken to employing some assumptions, apparently across the board to all submissions where the claimant is a possible candidate for a spinal chord stimulator (SCS). If the medical records contain any indication that such a device has been recommended by the claimant's physician, the MSA has been reviewed with the assumption that the claimant has completed a successful trial of the device and that the claimant would indeed consent to the implantation of the device, even if this was not the case in reality. Further, WCRC and CMS have been adjusting proposed MSA amounts upward based upon which devices CMS and WCRC assumes would be used and based upon higher replacement frequencies than may be indicated by the actual facts of the case.

    As a result, CMS and WCRC have essentially engaged in flat rate pricing of implantable devices. This practice has drawn criticism from MSA professionals because the practice ignores the individual care needs of claimants and also ignores the state WC schedule rates for these implantable devices and related procedures. This criticism recently reached its crescendo when CMS and WCRC increased its flat rate pricing without any advance notice or explanation to the MSA industry, resulting in a flurry of rejected MSAs with seemingly exorbitant and arbitrary increases in pricing.

    CMS' new memorandum appears to address this issue by creating a new grid to be used in the pricing of SCS' and other implantable devices. The grid provides for inclusion of individualized information regarding, among other things, the type, manufacturer, useful life, and suitability to the particular claimant of the specific device to be used. It also allows for a breakdown of associated devices, providers and procedures, as well as for pricing at state WC schedule rates. This type of detail at least provides an indication that CMS and WCRC may be ready to employ a more individualized approach to pricing of SCS' and other implantable devices; and will use its flat rate pricing model for these devices as a default in the event the individualized information requested in the new grid is not provided.

    To read the new CMS memorandum in its entirety and to review the new grid for SCS pricing, please go to: www.jjcelderlaw.com/August25-08CMSMemo.pdf